How to establish credit as a college student

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Establishing credit for college students

As a college student, you may find it difficult to open new credit cards without a sufficient credit score or credit history. While building credit takes time, college students can start establishing credit with just a few simple steps. Taking on a reasonable amount of debt, making on-time payments on that debt and having a healthy mix of credit accounts will help you start building a positive credit history and get your credit score trending in an upward direction.

Open new credit card accounts

Opening a new credit card may be intimidating, but they offer a great opportunity to make on-time debt payments. Even if you charge just a single meal to your credit card each month and pay that debt off when it comes due, you'll contribute towards building your credit score.

Get added as an authorized user or get a co-signer

Opening your own credit accounts is the surest way to build credit, but you can also contribute to your personal payment history by leveraging other people's good credit. Becoming an authorized user on someone else's existing card or obtaining approval for a new credit card through a co-signer can both earn positive payments on your credit report.

Tip: Not every credit card issuer will report authorized users' payment history to the credit bureaus. If you are considering becoming an authorized user, have the original cardholder find out their financial institution's specific policy.

Tip: Becoming an authorized user is a double-edged sword: while the account owner's good financial behavior can help your credit, any missed payments on the card will push your credit score down. Only partner with someone with a solid credit history and with whom you have mutual trust.

Make on-time payments

Once you have your name on one or more credit or loan accounts, the most important way to build credit is to make on-time payments, which can account for up to 40% of your credit score. Even making minimum payments on your credit card will help: as long as you're paying what you owe, your good credit behavior will help build your credit score.

Tip: To establish strong credit habits, only take on debt when you know your income can afford to pay it back.

Limit your outstanding debt

An important factor in credit scoring models is the total amount of debt you have. The less reliant you appear to be on debt, the lower your perceived risk profile and the higher your credit score. While opening new credit offers extends your credit limits and could improve your credit utilization ratio, keeping your credit card balance low is essential in maintaining a strong credit score.

Tip: Financial professionals often recommend aiming to keep your credit utilization ratio - your total debt divided by your available credit - below 30%. This factor could make up to 30% of your credit score.

Tip: Automate your credit card and loan payments to ensure you are submitting minimum payments each month. Consider finding the best debt payoff method to bring help your debt down to zero.